Business Operations

If you’ve come across the term “organizational design” or any variation of it (“organization design”, organizational design and development”, “organizational development”, etc), you hopefully already know it is an important topic, and one that is critical to the success of your business.  The main reason for this is that OD brings together the organization’s purpose with the people and support systems required to bring it to fruition – which is absolutely critical for success. 

For information on what Organizational Design is, go to the article “What is Organizational Design”. It will open in a separate tab so you can come back to this article afterwards.

The lack of a holistic OD exercise when it comes to setting up or changing elements such as strategy, structure or talent can result in a plethora of unwanted outcomes.  I’ve listed the most important reasons to embark on a full OD project, based on my experience and the issues I’ve seen unravel in departments and organizations that did not consider all the elements of organizational design when making changes that required it.

Reason #1: To align your structure to your strategy

In “What is Organizational Design”, I described the importance of an OD engagement to create alignment between your organization’s structure and resources.  If you haven’t read the article yet, I suggest you read it and then come back to this one.  Back to our topic – OD is important if you’re interested in making sure your structure supports and enables your strategy.  And that in turn is important if you are looking to have a successful business.  

Reason #2: To ensure all required activities are accounted for 

Without the detail involved in an Organizational Design engagement, it’s very possible to completely miss some activities that may be real game-changers for your structure.  These activities might be part of solutions to existing problems or even entirely new opportunities.  By going through the OD framework, you’ll make sure that all required activities are documented.  

Reason #3: To ensure structural gaps are avoided

Following from the previous point, without the detail involved in an Organizational Design engagement, it’s also possible to miss structural requirements entirely.  This could be a missing function, if the function is small (could still be important though!).  Other potential issues are the hierarchy and reporting lines of different teams.  Using the OD framework, you’ll be able to make sure that you’re not missing any structural pieces to ensure the success of your organization.  

Reason #4: To ensure adequate headcount

If you make a mistake with your activities and teams, there is a good chance you’ll end up with the wrong (lower) headcount too.  And that’s not something that’s going to make success any easier.  So as a result of points 2 & 3 above, you’ll also be able to make sure that you’re estimating required headcount more accurately.  

Reason #5: To provide a strong base from which to draw up job descriptions, skills and role requirements

At this point, I think it’s easy to see that with the points mentioned above and the steps you would have followed throughout the OD engagement, you’ll have plenty of detail for job descriptions, skills and requirements for specific roles.  It may take some time to get to this point, but by the time you’re here in the process, everything becomes very fluid.  In fact, it is much easier and a lot more comprehensive to write up a job description after going through this process (versus doing one from scratch).  It also means that you won’t miss any important accountabilities or skills as you’ll have a complete picture of what the role does and how it fits in the organization.  

Reason #6: To easily identify processes and process steps

Similar to point 5 above, when you go through the Organizational Design framework, you’ll be able to identify processes (including, of course, who is involved in those processes) very easily.  You can then extract entire processes and use them in training, communicating new changes and documenting your processes. 

Reason #7: To provide the basis needed to define measurement 

Lastly, with all the information above, and knowing what the organization is striving to achieve, you’ll be much better equipped with identifying the best metrics and measurement frameworks to provide visibility on how well your organization is performing in achieving its objectives.  

Final Thoughts on the Importance of Organizational Design

In closing, I would like to stress that “designing a structure” is not the same as following an Organizational Design framework.  The former focuses only on the organizational structure – how to organize people – potentially leaving out important areas such as alignment to strategy, split of accountabilities and activities across teams and people, defining processes to ensure efficiency and effectiveness, defining measurement frameworks, identifying required skills and competencies, and deciding on performance rewards, frameworks and mechanisms.  So if you’re looking for something holistic, Organizational Design is it.

Organizational Design is an extremely important topic and one of my favorite management consulting topics.  Understanding what Organizational Design (OD) is and being able to successfully complete an OD engagement are skills that will see you through many challenges in your career and business.  Here is the starting point.

Definition of Organizational Design

Organizational Design (also called “organization design”, organizational design and development”, and other variations of these) is a broad yet in-depth topic that aligns an organization or department’s strategy, structure, processes, skills/talent, measurement and reward system to set it up for success.  It is this alignment of the structure, processes, skills, measurement and rewards systems to the business strategy and objective that makes Organizational Design all-encompassing.  This is why it is such an important topic.  

Components of an Organizational Design Engagement 

An OD practitioner will ensure that several things have been put into place while working on an OD engagement.  These elements are:

1. that a coherent strategy is available or has been developed,
2. that an appropriate structure has been designed which supports and enables the strategy, 
3. that roles and teams within the structure have been defined, 
4. that processes have been mapped out to ensure maximum efficiency, 
5. that measurement frameworks for both people and processes have been defined and set up, and
6. that an additional rewards framework for the former has been put in place.  

Behavioral Component of Organizational Design 

OD also includes a behavioral component that supplements the scientific approaches to designing an organization.  This is so important, because it indicates a recognition that the human aspect of OD has a large influence on the scientific or “business” aspect of it.  A big part of the behavioral component is anchored in stakeholder management and change management.  Other pieces of behavioral considerations include an understanding of organization culture and how specific structures, hierarchy, areas of responsibility and specific accountabilities may be threatened or even unsuccessful within the current organization’s environment.  

Why is Organizational Design Important?

The OD practice is important, most of all, because it drives success for the organization.  The stitching together of strategy, structure, processes, skills and more provides the organization the best possible chance for a positive outcome.  Without the alignment created by Organizational Design, you could have a great strategy, great people and effective processes, measurement systems and rewards in place, but they could be completely misaligned, not supporting or enabling the business strategy or objectives at all – clearly a big problem.    

What does Organizational Design Entail?

End-to-end, Organizational Design involves the following steps:

1. Articulating the strategy, goal, current state and gaps

Although the OD engagement may not include setting or defining the strategy, it is important for there to be a strategy in place.  The strategy must be well articulated so that the OD practitioners, stakeholders and other team members can use it to ensure the rest of the OD work supports and enables the right strategy.  

2. Designing the structure

It should come as no surprise that the OD engagement will include designing the organization structure.  The difference between merely constructing a structure and constructing one within the context of an OD engagement is that the latter ensures the structure supports and enables the strategy, whereas the former may not necessarily follow a methodology to ensure it does.  

3. Defining roles, teams, hierarchy, span of control and accountabilities within the structure 

An OD piece of work provides users a methodology and framework with which to identify roles & teams.  Although this can be done separately, when doing it as part of an OD engagement, you’ll find that the outcome is clearer and easily to achieve.  

4. Creating job descriptions for all the roles within the structure, highlighting both hard and soft skills

Because of the detail involved in the OD work, it becomes very easy to produce job descriptions and, if needed, team descriptions.  Both will cover accountabilities, responsibilities and required skills of either the team or the individual.

5. Mapping out processes for at least the main or major activities throughout the organization/department 

Again, because of the detail involved in the OD work, mapping out the major processes is also something that can be done fairly easily and quickly.  One of the key benefits of an OD engagement is that by putting in the work required by the methodology in the beginning, all of the details become clear and easy to identify later on.  

6. Defining measures of success for teams and processes

After defining the team roles, job descriptions and major processes, it is necessary to articulate the measures of success for teams and processes.  With the information already available at this point, these measures are also fairly easy to identify, as the team accountabilities and processes have already been defined.  

7. Deciding on rewards for performance

The last part of the OD engagement covers rewards for performance.  This is very often left out, but it shouldn’t be, as it cements leadership’s commitment to the strategy and to ensuring everything is being done to achieve it.   

A Final Note on Organizational Design

Hopefully your interest in Organizational Design has been piqued.  It is, as I mentioned earlier, one of the best ways to ensure success in your organization – and who doesn’t want success?

Times have changed.  In fact, times are always changing!  But one thing probably hasn’t changed much – your organization structure.  People have come and gone, operations may have changed, but – at least on paper and in job descriptions – you haven’t (yet!) looked at your organization or team’s structure and roles to see how they should be adjusted.  

There are so many reasons to review and update your team or organization’s structure.  Sometimes, you may not even realize you’re in one of these scenarios, and therefore won’t be aware that you should be thinking about restructuring!  To help you out, I’m going to cover four of the most common reasons leading to a need for a restructure and what you should do if you find yourself in any of these scenarios.  

Restructure Reason #1: Attrition

If you’ve recently lost a lot of employees, you may find gaps in some areas of your team or organization.  This isn’t a problem if the gaps are in areas where the workload is currently low.  However, if the gaps are in critical areas or teams, you’ll want to do a rebalancing quite quickly to make sure that your operations are not impacted.  

Action: Draw up your organization structure and indicate the following on it:
– Expected/planned number of positions
– Current filled headcount
– Vacancies 
– Risk score of current headcount (1 – low risk, 3 – medium risk, 5 – high risk)
– Movement of people to areas that are more critical at this time

Once that’s in place, re-assess the people in positions to determine whether this could be a permanent change or if you need a more in-depth review into the structure to achieve that. To do this, mark the people who you have moved from one team to another on your organization chart.  Working with your HR team, and aligning with your specific organization’s processes, determine whether the people you have moved are both willing and able to stay in these new roles permanently.  For areas with people who are not both willing and able to stay in their new roles permanently, you’ll need to work on a long-term resource solution.

Restructure Reason #2: Changing customer expectations

There is no better reason to review your internal structure than to do it so you can meet (and exceed!) your customers’ expectations.  Keeping your customers more than happy is and will always be the key to success.  Customer expectations change in line with developments across a wide spectrum of areas such as technology, the environment, the economy, trends, etc.  Customers may expect you to understand their preferences better, now that we have data we can use to do that.  Or they may expect better delivery or scheduling options, since competitors have raised the bar.  They could even expect a concierge service for VIP customers who are part of the high tier loyalty scheme.  For all these examples, there are internal structure implications that need to be met in the form of a customer insights team, a scheduling team and a concierge service team.  

Action: Identify any customer expectations that you are not able to completely meet today.  Going through them, make note of any new roles or teams that you need to put into place to be able to meet these expectations. 

Restructure Reason #3: Changes in the external operating environment

The external operating environment, which consists of competitors, markets, regulator and regulations, suppliers, partners, and more, can also have an impact on how you structure your team.  An example of how regulation has had an impact on structures is easily seen with the EU Data Privacy Regulation.  In the couple of years leading up to its implementation, and in the years since then, organizations that have European Union residents within their customer base have had to put in place a Data Privacy Officer, and, in order to be able to satisfy the requirements in the new regulation, most have also implemented an entire Data Privacy Office.  Some organizations may even have Data Privacy Champions in each of their departments.  

Action: Examine changes in your external operating environment.  You may find it easier to first make a list of what these areas may be and then look at each one to determine whether any changes have or will be taking place.  Next to each change, note whether a change in structure (i.e. a new role or team) is required.  

Restructure Reason #4: Aligning to a new strategy

Probably the most common of all reasons to restructure.  If you’re set up to deliver against a strategy, and that strategy changes, or even if new or updated objectives are drawn up, revisiting your structure is more than recommended, it’s basically a must.  If, for example, you run a B2B business, your sales and marketing teams will be set up to interact with businesses.  Content creation will likely cover lead generation, sales decks for the trade to use, product demos and similar content appropriate and useful for a B2B business.  If, however, you decide to open up a B2C channel, you’ll have to start creating different content – appropriate for end-customer consumption – and to do that, you’ll likely need different sales and marketing skills and/or teams.  

Action: Revisit your strategy.  Has anything changed compared to the previous year?  If so, what are the skills or teams required in order to fulfill the new objectives?

A Final Thought on the Time between Restructures

You should re-evaluate your structure every 4 years.  That’s a long enough cycle to let the previous structure settle and produce benefits to the organization and a short enough cycle to ensure that the structure doesn’t get stale or fall out of touch with developments in your industry, customer expectations, technology etc.  A department or an organization that doesn’t restructure every now and again is at risk of falling behind the competition and disappointing customers along the way, neither of which is good for business.